2020/2021- The Year of Economic Reckoning?

2020/2021- The Year of Economic Reckoning?

Two weeks ago the IMF paid a visit to Namibia. They were not here for their regular annual Article IV consultation but something far more serious. They were undertaking a Macroeconomic Risk Assessment of the country. The report now in wide circulation has one outstanding feature. The Action plan and interventions the government is supposed to implement are all dated 2019. That means the IMF expects the government to implement what it sees as the necessary economic reforms on the economy before the election scheduled which is scheduled for around November 2019.

To say the least many of the reforms proposed by the IMF are not exactly vote winners and as a result the obvious question arises as to whether the government will have the political will to implement these reforms and lose votes at this time. What are these reforms? By and large they involve cuts in government spending. The most obvious change that the IMF has pointed towards is what emphatically calls ‘Reduction in  the expenditure rigidities’ and  ‘greater flexibility’ in public sector wages. The barely veiled intention is to lower real wages in the public sector and/or to decrease employment. Recently the governor of the Central Bank Mr Iipumbu Shiimi bemoaned the enormous wage bill of the government which currently stands at 50% of the country's revenue, and 16% of the gross domestic product (GDP). “If we add state-owned enterprises, the wage (bill) goes up to 70%,” he stated, adding that the workforce stands at 117 000 public servants, with a wage bill that has shot up from N$13 billion to N$30 billion over the past years. The IMF’s version of flexibility means only one of two things for Namibia’s public sector employees, either lower wages and/or even more unemployment.

But wages are only one of a slew of measures that the IMF is expecting the government to grapple with in 2019. Probably just as important is a bloated state-owned-enterprise sector where many lose money hand over fist. The partly state owned but privately managed Windhoek Golf Club, is run by efficient external managers who handed the government a revenue check of $6 million this years as it does almost every year. On the other hand the state owned parastatal Namibia Wildlife Resorts (NWR) and owns numerous hotels and resorts throughout the country lost suffered losses amounting to N$126 million over the last two years. Of these losses, N$40 million was reportedly  incurred this year, while N$86 million was for last year, indicating that things are looking up?  If the lessons are not clear then it is because someone doesn’t care- state ownership without private management is a recipe for sustained losses.

What is more we have just acquired another SOE - Namibia is a 51% share holder in Peugot PSA plant in Walvis Bay. And the Council at Otavi has taken a 20% share in the new steel mill. It is normal practice for local governments that take a financial interest in a business and these holding are guaranteed by the national government. But not all SOEs lose money. Nampower as well others like Telecom , for example, has been earning profits but it is the exception. The real threat is not these investments nor is it even the enormous losses of many SOEs like Air Namibia which lost $1 billion in 2017 but the heart of the problem is political- the belief by government  that government can solve the nation’s problems through ever more state ownership.

State ownership and the ensuing losses of SOEs are just part of the nation’s economic problems. The IMF has identified a more fundamental issue and that is the massive investments in infrastructure by SOEs and the government directly that are drowning the country in unsustainable debt. The proliferation of new buildings from Home Affairs to the Police to NATIS in Namibia along with huge white elephants like the Medical faculty at UNAM, the completely unnecessary expansion of the container facility at Walvis Bay and the multi-billion dollar oil storage facility at Walvis Bay along with the four lane freeway to the airport are all examples infrastructure investment that have never been subjected to rigorous analysis!  But the remedy to this potentially disastrous proliferation of unjustifiable investments suggested by the IMF simply won’t work. The IMF has suggested that Namibia ‘Develop a gatekeeping mechanism that serves as a check and balance for the business case of each investment project through multi-stakeholder engagement (NPC, portfolio ministry, MoF and public entity)’

Getting Planning, Finance and the line ministry involved to determine which investments have a good business case and which do not is akin to inviting Dracula into the blood bank! For Dracula, all blood tastes good.  These line ministries along with the National Planning Commission will not say ‘no’ to a powerful minister who wants a project that may make no commercial sense. He may want the project for reasons of ego or reasons that even far less salubrious and the ministers will normally get their way.

The only way to have a real ‘gateway’ that ranks projects and stops completely sub-economic projects infrastructure project from bankrupting the nation is to have a thoroughly independent assessment of the economic cost and benefit and a ranking of investments which are best done by the national assembly in free and completely open evidence based discussion.

If the government does not do what the IMF asks in 2019 what will happen? Nothing so long as we don’t need a loan from them. But the IMF has asked for implementation of all this because Namibia is sitting a on an economic precipice and we will fall in shortly. In 2021 Namibia has to roll over a US$500 million ( $N6.5 billion) Eurobond on the money markets. The last time we went to the money markets we got the loan at 5.75% but then we were still labelled by credit rating agencies as being investment grade. Now Namibia has acquired ‘junk’ status and when we go back to the money markets we will be lucky to borrow at 10% and the loan could well be under subscribed. If we are going to have roll over debt at such high interest rates or not be able to raise sufficient funds from the market then we will have no choice but to go cap in hand to the IMF and then the proverbial will hit the fan.

IMF adjustment loans are ugly things. The boys and girls from Washington will take over the management of the economy and the IMF will force government to cut back wherever it feels it is necessary in order to assure that Namibia repays its debt. It will be the poor and public servants- policemen, teachers and nurses and doctors who will suffer the most.  

These are the views of Professor Roman Grynberg and not necessarily UNAM where he is employed.